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11/29/2011

Japan, Toyota Feeling Impact of Highly Inflated Yen

As a follow-up to a recent post regarding the institution of a free-trade agreement between the U.S. and Japan, a November 29, 2011, article published on bloomberg.com reveals that the modification of international tariffs is not the only factor playing a role in the Japanese automobile industry, not to mention the entire Japanese economy.

Upon reading the article one is left with a feeling of deja vu. Talk of historic inflation rates, bail-outs and stimulus packages is all to familiar to Americans. Now, its apparently Japan's turn to go through the same cycle. The Yen is reaching historically high inflation rates - comparable to post WWII rates that were the country's highest ever - and company's as large as Toyota are feeling the crunch. The company's president, Akio Toyoda, even said that his company “will collapse” unless the currency weakens. While there seems to be added stability to the U.S. automobile industry at the moment, it leads one to wonder how effective, in fact, were the changes and aide given to U.S. automakers and will the industry continue to improve in the long run? Now, with Japan in a very similar position, what is their best plan of action? Is a short-term solution the key or should long-term adjustments be made?

3 comments:

I personally believe that Toyota produces a superior product and as such will survivee in tact. Those American auto manufacturers who received federal aid will, or should, have to pay back these loans at some point. It was more important for Americans to feel a sense of security, and thus these bailouts became almost mandatory, even though I belive some, if not all, should have been allowed to fail. Toyota and the Yen will survive, but as with all good things, it will take time.

According to an article written Nov. 28th in Businessweek, the yuan declined, touching a five- week low, on speculation China will slow the pace of appreciation as inflation cools.“There is less need for China to strengthen the yuan to lower import prices as inflation is easing,” said Banny Lam, a Hong Kong-based economist at CCB International Securities Ltd., a unit of China’s second-largest lender. “The worsening economic outlook may also steer officials toward protecting exports.” This article gives me the impression that China is feeling the effects of a global recession.

-1 on Aaron and Windwalker - for a poorly formatted link, and a spelling error.

This isn't a great topic for ManEc, but you came to the right professor for a post about the stimulus and business cycle experiences of other countries.

Aaron has it backwards: the deja vu experienced by Americans when they hear about Japan's current problems pales in comparison to the deja vu Americans feel with respect to Japan's past problems.

For 20 years, Japan has been pursuing policies similar to the stimulus packages of Obama and Bush before him. They didn't work any better in Japan, where they were proportionally larger and pursued more often and with more buy-in. Of course, the American government learned from this experience. Yeah ... right ... sure they did. No, instead the poured money down the same rat hole.

As to the auto companies specifically, it is a very bad sign if Toyota is relying on exchange rate devaluation to sell its products. This is a sign that they aren't winning on the cost/value tradeoff. Gee ... you don't think the same thing that Japan did to Detroit a generation ago is being repeated by South Korea, do you? If not, you should.

As to Windwalker's comment about the American auto companies, it is way off base. Those companies were not bailed out. This is the common understanding, and it is wrong.

What happened was more akin to the bankruptcy process being perverted through a violation of the absolute priority rule. Any (bail out) loans are secondary to that. Most creditors and equity-holders were pushed out with less value for their investments than they should have gotten. That "missing" value was transferred to the unions to shore up their underfunded pension and healthcare liabilities. If the auto companies were fundamentally sound, this is akin to theft. But, I don't really think they were, so it is more akin to the government fulfilling the letter of the contracts signed by management with unions, by giving the unions a piece of cr*p.

Sorry if this is offensive, but the bailout of GM and Chrysler is bad all ways around, and you're going to have to live with this coming back to haunt you for 2-3 decades.

As to Ethan's comment about China, there is no global recession. It has been over for 2 years. What China is experiencing is problems with a weak expansion (and is not that different from the U.S.). The problem with China, is that we don't know enough about the accuracy of the numbers they publish to judge how bad things are.